On Friday, markets have gone into wait-and-see mode ahead of the US labour market data release later. Average market forecasts suggest that the economy created around 500K jobs in March, of which 480K came from the private sector. Such data would narrow the gap between the peak before the pandemic to 1.5 million. Given that some job seekers have left the job market during this time, it becomes clear how tight the market remains. And this will intensify the struggle of employers.
From the new data, analysts, on average, expect a further acceleration of the wage growth to 5.5% YoY against 5.1% a month earlier and a 5.4% growth of the personal consumption price index in February. Thus, the labour market has an additional pro-inflationary effect on prices as more money is available in the US economy and competition for goods tightens.
If the labour market does manage to add more than half a million jobs in March, we should expect a severe tightening of the rhetoric of the US monetary authorities in the coming weeks. It will not be surprising if we see more willingness of FOMC officials to hike the interest rate by 50 points at once on the 05th of May.
For the speculative currency market, robust US employment data has the potential to put the Dollar back on the upside, making the US the only economy capable of such a sharp monetary policy tightening in the coming months.
The dollar index has been moving in an upward channel since the middle of last year, adding more than 11% from the bottom to the peak. Earlier in the week, the DXY pulled back after the Russia-Ukraine talks in Istanbul. However, monetary policy could provide continued and sustained support for the US currency, very soon returning the Dollar to renew its two-year highs in the area above 100. For EURUSD, this could mean a consolidation under 1.1000 and GBPUSD under 1.3000.